Players compete in a video game competition during the grand opening of esports Arena Las Vegas at Luxor Hotel and Casino. (Ethan Miller/Getty Images)

ByNoah Smith

April 6, 2018

Since 2015, at least a dozen NBA teams, owners and players have invested heavily in the growing esports market, backing or buying competitive gaming teams around the globe. Dallas Mavericks owner Mark Cuban, a dot-com pioneer who built a fortune in the tech world, opted for a different route. Instead of buying an esports team of his own, Cuban made a bet on betting, investing in a company called Unikrn that sets lines and takes wagers from around the world on esports competitions.

Major esports leagues such as those for popular games League of Legends, Overwatch, Counter-Strike: Global Offensive and Dota 2 continue to rise in value at a meteoric pace, projecting to be worth $906 million in 2018 — a figure that includes sponsorships, advertising, media rights, game publisher fees, merchandise and tickets. It would represent 38 percent annual growth from 2017, according to market research firm Newzoo.

Less visible to outsiders, the gambling market around those leagues is even more robust. Even with sports betting illegal in the vast majority of the United States, global wagering on esports was projected at $6.7 billion for 2018 in a report by software analytics company Narus and research firm Eilers & Krejcik Gaming. That same report expected the total to approach $13 billion by 2020. By comparison, a 2013 report by the BBC estimated global soccer betting at between $49 billion and $70 billion, which, like the esports report, included both legal and illegal wagers.

As Unikrn and other esports bookmaking companies try to tap into the lucrative and still-growing market, such bodies also are bringing order to a world that often flirts with the lines of legality, facing issues of underage gambling, ill-defined regulations and match-fixing, while also becoming positioned to receive a potentially significant boost.

When Cuban first invested in Unikrn, he did so despite the fact that betting on sports is prohibited by U.S. law in all but four states, believing, as he said in an email interview with The Washington Post, that someday would change. That belief could soon become reality.

With the Professional and Amateur Sports Protection Act of 1992 (PASPA) under review by the Supreme Court, there’s potential for a ruling that would legalize sports betting outside of Nevada, Oregon, Montana and Delaware. Such a decision could signal a huge windfall for Unikrn and other such companies that accept esports betting, catalyzing an already emerging sector of the gambling world.

A growing base of bettors

A vast majority of cash bets are placed online and are wagered on the outcomes of games and tournaments, much like the traditional sports betting found in Las Vegas. Some other wagers involve fantasy teams or head-to-head matchups in which the bettor is playing, similar to a poker match or a drag race, in which players bet on themselves to win.

Unikrn — as well as companies such as Betway, Pinnacle, William Hill, Ladbrokes and GG.bet — offers a sportsbook and odds via its website, taking bets on the outcomes of esports league and tournament games. Unikrn accepts bets using cash and later this month will accept them using a proprietary cryptocurrency called UnikoinGold — similar to bitcoin — that raised $31.4 million in its Initial Coin Offering (ICO). Rahul Sood, founder of Unikrn, creator of Microsoft Ventures and a gamer himself, claims Unikrn has about 4 million active users, many of them from a young user base.

Sood noted the attractiveness of a younger demographic as a central reason he started the company. A Washington Post-UMass Lowell survey conducted in fall 2017 showed almost three-quarters of Americans age 14 to 21 either played or watched multiplayer online games or competitions in the previous year. Half of adults under 30 have played or watched online games, as have a quarter of adults overall. Even with betting restricted to those over 18, such a customer base could be attractive to casinos looking to hedge against aging clientele.

“If you look at the slot machine area, there are probably more wheelchairs and walkers per square foot than anywhere else in the casino,” he said. “Young people go straight to the nightclub and don’t spend time there.”

Young or old, the market for Unikrn has been limited because of its inability to take bets from inside the United States. Advocates of esports betting believe legalized sports betting will have a significant impact on the esports gambling market, noting that with more sportsbooks taking legal bets in more states, those books inevitably will adopt esports into their betting offerings, given the rapid growth of competitive gaming. Others, such as the American Gaming Association (AGA), see a more complicated road for esports betting.

A potential jackpot

Even if PASPA is repealed or altered, each state must decide whether to allow sports betting and then create its own regulatory framework. It would be up to the states to decide on how to categorize esports. In Nevada sportsbooks, esports betting falls outside of the state’s sports betting structure. Instead, esports are listed under “other events,” as are bets on the NBA draft or the Heisman Trophy winner, for example.

Seth Schorr, CEO of Las Vegas’s Downtown Grand Hotel and Casino, one of the first sportsbooks to accept bets on esports, pointed to a memorandum of understanding between the Nevada Gaming Control Board and the esports Integrity Coalition as evidence that esports will be defined as a sport for betting purposes, but he noted that not all esports leagues and tournaments would qualify.

“You can’t bet on football; you can bet on the NFL. I see Nevada looking at specific esports leagues and offerings,” Schorr said, explaining that the ability to guarantee integrity, and prevent match-fixing and cheating, is paramount.

The presence of companies such as Unikrn can help on that front, just as sportsbooks helped root out a match-fixing scandal in professional tennis in 2017 by flagging irregularities in betting patterns and competitive results.

Just as traditional sports have encountered instances of fixed games, so, too, has the fledgling esports scene. Twenty-one players accused of fixing competitive matches for the game Counter-Strike: Global Offensive were banned from future professional events for orchestrating the outcomes of matches in 2015. In March, two men — one who ran an illegal gambling site and the other a pro player — were arrested for fixing a StarCraft tournament match.

Many bookmakers lack sufficient data on the performances of esports players and teams that traditional sportsbooks use to make odds for games in the NFL or another pro sports league. This kind of immaturity in the market, the lack of state-level regulations and the number of underage fans are reasons the AGA does not believe a repeal or alteration of PASPA will have an overnight effect on the esports betting market.

“I don’t think PASPA is the vehicle for the blossoming of esports,” said Will Green, senior director of strategic communications for the AGA, noting the lack of pending legislation at the state level that specifically authorizes esports betting.

“There has to be clarity [regarding esports being classified as a sport for betting purposes by regulators], and right now there are more questions than there are answers. There really is no knowledge about how PASPA affects esports.”

Another governmental regulation also presents challenges to online esports betting.

“If PASPA is overturned, the Wire Act still exists, which means unless they [the U.S. Congress] do something about it, you will only have intrastate sports betting,” said Jennifer Roberts, associate director of the UNLV International Center for Gaming Regulation and an adjunct professor at the UNLV William S. Boyd School of Law.

Unikrn’s plan for dealing with the Wire Act is to partner with licensed, land-based casinos and use their geo-based technology and other security measures to ensure that only customers in states with permitted sports wagering are able to place bets.

Because of what he sees as the growing acceptance of gambling in the United States, and sports betting specifically, Schorr believes the end of PASPA would have a “massive impact” on esports betting, but he cautioned the change would not be immediate.

“Everything takes time; each state is different,” he said. “We are catching up with the rest of the world.”